1 in 5 sole traders close after one year

A fifth of self-employed sole traders don't survive for more than a year, analysis by the Institute for Fiscal Studies (IFS) shows.

The number of self-employed business owners in the UK has grown significantly in recent years, from 3.9 million in 2000/01 to 4.9 million in 2015/16.

Business owner-managers are found in all sectors of the economy, the report said, with sole traders most commonly working in construction or business services.

While the overwhelming majority (80%) of sole traders survive beyond the first year of starting a new business, only 40% remained trading into their sixth year.

In general, the IFS said sole traders who are aged between 35 and 54, have been trading for longer, and have higher profits and sales are more likely to keep trading in any given year.

Other factors associated with more ‘established' businesses also influenced the likelihood of business closure, with sole traders who use capital allowances more likely to continue trading than those who do not.

Around 10% of business closures since 1997/98 can be explained by incorporation, which can have tax advantages for higher-income sole traders.